Japanese shares have extended their losing streak at the end of the week after the country's closely-watched Tankan report shows business confidence in the world's third-largest economy has dropped to a three-year low.
Shares in Japan dropped for the fourth straight day on Friday, slumping more than 3 percent as market sentiment was undermined by disappointing data from the country's important manufacturing sector.
The benchmark Nikkei 225 Stock Average lost 594 points, down 3.55 percent, to close at 16,164 points, while the broader Topix index was down 45 points, or 3.4 percent, at 1,301.
The downturn was caused by eroding sentiment among Japan's big manufacturers, which has deteriorated to its lowest in nearly three years and is expected to worsen in the coming quarter, a closely watched central bank survey showed Friday.
The Bank of Japan's quarterly Tankan index fell by 6 points since December to plus 6 points. It is the first time the index has fallen to below 10 since June 2013, adding to doubts over the health of the world's third-largest economy.
Moreover, big non-manufacturers' sentiment dropped to plus 22 from plus 25 three months ago, deteriorating for the first time in six quarters. Across all sectors, corporate managers said they would cut their capital investment by 0.9 percent on average for the current financial year, adding they expected the Tankan index to fall to plus 3 in the next quarter.
A Bank of Japan (BoJ) official told reporters in Tokyo that the slowdown in emerging economies, particularly China, had affected business sentiment. "The impact was huge for big manufacturers with direct exposure to global economic conditions," he added.
'Abenomics' under pressure
The weak investment forecast was bad news for Prime Minister Shinzo Abe's government which considers strong corporate investment as key to propping up Japan's sluggish economy.
In the final quarter of 2015, the economy shrank at an annualized rate of 1.1 percent due to weak exports and domestic consumption - the second contraction in three quarters. Many analysts now expect it to have contracted again between January and March, which would put the country back into recession, commonly defined as two straight quarters of negative growth.
Japanese exporters are concerned about the continuing strong yen and slow growth in emerging economies such as China, Japan's largest trading partner. The yen has climbed nearly 7 percent against the US dollar since the start of this year, making Japanese goods less competitive overseas and eroding repatriated earnings.
The BoJ launched an unprecedented monetary easing plan in early April 2013, a cornerstone of Abe's economic policy - known as Abenomics - to bring an end to almost two decades of deflation that held back growth.
The gloomy survey will add pressure on the BOJ to do more to prop up growth, though many central bankers are reluctant to ease again soon with financial institutions still struggling to digest the impact of January's controversial decision to adopt negative interest rates.
Kohei Iwahara, director of economic research at Natixis Japan Securities, told the news agency AFP that the Tankan data didn't "look very good," adding "it's become clear that the economy is weakening. We need a policy response, but the question is what."
uhe/hg (AFP, Reuters, dpa)